NEW YORK- Treasury yields fell on Tuesday in a holiday-shortened week as investors consolidated positions following last week’s gains on the long end of the curve in the wake of stronger-than-expected inflation data.
The decline in UK and Canadian yields also weighed on their US counterpart, analysts said, on a day when there’s not much economic data in the United States. Investors are looking to Wednesday’s minutes of the January Federal Open Market Committee meeting for more clues on the US interest rate outlook.
UK two-year and 10-year gilt yields fell to 4.551 percent and 4.01 percent , respectively in the wake of comments from Bank of England Governor Andrew Bailey on Tuesday saying he was comfortable with investors betting on rate cuts this year.
Canadian yields also weakened, falling to 3.5 percent as Canada’s annual inflation rate slowed significantly more than expected to 2.9 percent in January and core price measures also eased, bringing forward bets for an early rate cut.
Moves in those markets spilled over to Treasuries, analysts said.
The US rate futures market has priced in an 80 percent chance of a rate cut at the Federal Reserve’s June policy meeting, which would be the first cut since the COVID-19 pandemic, according to LSEG’s rate probability app. Two weeks ago, rate futures were betting on easing in March.
For 2024, futures traders are pricing in at least three rate cuts of 25 basis points (bps) each, taking down the fed funds rate to 4.4 percent by the end of the year. Two weeks ago, traders factored in at least five cuts.
